Minnesota Corn will work to shape 45Z guidance
By Amanda Bilek
Minnesota Corn Sr. Public Policy Director
Last week, the U.S. Department of the Treasury released long-awaited guidance for the 40B tax credit. This tax credit was authorized under the Inflation Reduction Act and is geared towards blenders of Sustainable Aviation Fuel (SAF). Although MCGA was disappointed in the guidance, it is important to note that the 40B tax credit expires at the end of 2024, and with just a couple SAF blenders in the country, the benefit of this credit to corn farmers is limited. Consequently, Minnesota Corn is devoting time and resources to help shape the 45Z tax credit guidance.
Minnesota Corn sees the emerging SAF market as a significant opportunity for future corn demand. New demand could be met with ending stocks of corn instead of new cropland. A common argument against using agriculture feedstocks for renewable fuel production is conversion of non-ag land into crop production, but those detractors overlook available feedstock supply now and into the future.
According to projections completed in October 2023 by the USDA Economic Research Service (ERS), ending corn stocks for the 2023/2024 crop year could exceed 2.1 billion bushels. Due in part to improvements in corn hybrids, ending corn stocks could climb even higher in the 2024/2025 crop year to 2.6 billion bushels and 2.7 billion bushels in the 2025/2026 crop year. ERS also projects a corresponding decline in the price of corn as stocks increase. Identifying new uses for corn is integral to ensuring financial sustainability for Minnesota corn farms.
Minnesota Corn’s part in the future of SAF
Minnesota has big aspirations for SAF. Public policy leaders see SAF development as a significant opportunity for Minnesota due to a combination of abundant agricultural feedstocks, a strong biofuel production system, a major airline hub airport and existing fuel refining assets. Last year, the state legislature approved an SAF tax credit to help bolster the production and use of SAF. GREATER MSP launched an SAF hub with partners from Delta, Ecolab, and Bank of America to create a model to scale SAF. Minnesota Corn joined the hub earlier this year.
Partnerships will be key to help SAF take off in Minnesota. There’s a lot of work to do to fully realize the promise of SAF in Minnesota. Investments need to be made in research, demonstration and pilot projects, expedited environmental permitting, additional environmental permitting reform, and complementary public policy. All of this will need to be implemented in a relatively short period of time to take advantage of the federal tax credits. Minnesota Corn will be sharing more in the coming months about specific activities and projects we will be undertaking to help take advantage of this opportunity for Minnesota’s corn farmers.
The next available SAF federal tax credit is 45Z and is for producers of SAF. The credit is effective January 1, 2025, through December 31, 2027. MCGA will now focus the next several months, with our partners, on working to ensure that the GREET model update and guidance for 45Z is more flexible and provides a pathway for Minnesota corn farmers to supply a low-carbon and sustainable feedstock source for SAF. If the current GREET model updates and guidance are preserved in the 45Z tax credit, we think opportunities for Minnesota corn farmers to supply feedstock for SAF will be limited.
How we got here
Before digging into some shortcomings of the recently released 40B guidance, a little SAF background. There are several pathways to produce SAF. All SAF pathways depend on some level of additional technology innovation to scale SAF production. The alcohol-to-jet (ATJ) pathway is the most immediate and near-term opportunity to supply significant volumes of SAF. An alcohol-to-jet pathway could use abundant volumes of Midwestern corn-based ethanol and use a catalytic process to upgrade ethanol to SAF.
The SAF tax credits authorized in the Inflation Reduction Act require that SAF must reduce greenhouse gas emissions, on a lifecycle basis, at least 50 percent compared to fossil fuel-based jet fuel. There are different tools or models that can be used to evaluate lifecycle GHG emissions, but in December the Treasury Department specified use of the GREET model to certify SAF emission reductions. GREET stands for the Greenhouse Gases, Regulated Emissions, and Energy use in Transportation (GREET) and is the gold standard for evaluating the lifecycle emissions of various transportation fuels (liquid, gaseous, electric) options on a level-playing field and was developed by scientists at the Department of Energy Argonne National Laboratory.
In most cases, existing Midwest ethanol plants will need to implement new energy efficiency, renewable energy, or carbon management technologies to meet the 50 percent tax credit GHG reduction threshold. Plants can also look outside the fence of the ethanol plant to reduce downstream emissions. This offers an opportunity for corn farmers as it is where the calculation of potential carbon reductions in the feedstock production process is considered.
What the 40B guidance means
The SAF 40B tax credit guidance issued last week by the U.S. Treasury Department for the first time provided a method to recognize and calculate emissions reductions from feedstock production practices. Unfortunately, the method proposed is not appropriate for most Minnesota corn farmers. Treasury is referring to this method as a Climate Smart Agriculture pilot program.
In order to credit emissions reductions from the production of corn to produce SAF, a corn farmer will need to utilize no-till or strip-till, cover crops, AND enhanced efficiency nitrogen fertilizer on all acres that grow corn for ethanol-to-SAF. An enhanced efficiency fertilizer would be one of three specific nitrogen strategies for corn including a nitrification inhibitor product, urease inhibitor product, or a slow-release fertilizer. It doesn’t appear the guidance recognizes the full suite of strategies corn farmers use to manage nitrogen use efficiency. In addition to the practice bundle approach, MCGA also has significant concerns with the reporting and verification requirements for the CSA pilot, adding to the barriers for Minnesota corn farmers.
The CSA pilot program practice bundle method awards carbon reduction points in the overall lifecycle assessment under an all or nothing approach. A better approach would be to focus on outcomes that can be comprised of a suite of feedstock production practices that reduce carbon emissions such as variable rate nitrogen application, the use of manure to supply nitrogen fertilizer to the crop and crop rotations to name just a few. MCGA will be working with our state and federal partners over the next several months to help shape the guidance for 45Z that more fully recognizes the suite of practices corn farmers utilize to increase efficient production of the crop and reduce emissions. Look for future posts from Minnesota Corn that dig even further into SAF and efforts we are undertaking to help SAF take off in Minnesota.
